The Netherlands has fallen into a technical recession. Why are European countries all in deep crisis?
The Netherlands is the second major European economy to enter recession this year as fresh quarterly data was released on Wednesday. The Dutch economy contracted 0,4% in the second quarter following a 0,3% drop in the first three months of the year.
Preliminary data was released today by Statistics Netherlands. As often happens, it will be revised in the following months as more accurate measurements come in.
A recession is defined as two quarters in a row of negative GDP growth. A technical recession, however, does not necessarily cause the same effects on the population as a real crisis.
GDP measurements take months to be felt in the population. The Netherlands will enter a real recession, with people losing jobs and family wealth, if the next quarters will show similar signs.
Nevertheless, GDP contraction is never a good sign especially when paired with a decrease in exports and consumer spending. In the Netherlands, the former fell by 0,7% and the latter by 1,6% in the second quarter.
Industrial output has also been declining since the illegal Russian invasion of Ukraine, with a 12,1% drop in April compared to the same month in 2022.
The Netherlands is a major industrial power and the EU’s fifth-largest economy. The city of Rotterdam hosts the largest port anywhere outside Asia with a capacity of 15,9 million TEU. Dutch recession is therefore a major drawback for the European economy.
What is causing a European recession
The Netherlands is the second EU country to enter a recession in 2023. The first was Germany, Europe’s largest economy and the bloc’s most important industrial juggernaut.
Dutch and German recessions are caused by interest rate hikes by the European Central Bank, pressuring European banks and businesses. Currently, Eurozone interest rates sit at 3,75%.
Indeed, the whole Eurozone fell into a technical recession after revised data showed two quarters in a row of slight contraction.
The ECB is quickly raising interest rates to cool off inflation, though it remains high almost everywhere in Europe. Dutch inflation sits at 4,6%, almost a percentage point lower than the Eurozone’s average but still too high to take risks.
The Eurozone is entering a period of severe stagflation: high consumer prices and low economic growth. ECB President Christine Lagarde always stated inflation was their first priority, even if it meant bringing the entire continent into a recession.
Which will be the next chip to fall? France and Italy, respectively the EU’s second and third-largest economies, are experiencing unexpected GDP growth. Will they stem off recession from the entire continent? Only time will tell.
